changing diabetes in china - mixprize.org filethe challenge china faces growing diabetes burden...

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02 The Blueprint forChange Programme

February 2011

Since 1994, Novo Nordisk guided byour Triple Bottom Line principle has pursued a long-term business strategy in China. We have made major invest-ments in strengthening the healthcare system, establishing local presence across the value chain and building strong relations with local stakehold-ers. Today, Novo Nordisk is the lead-ing player in the insulin market in terms of market share and reputation.

GUISHAN HANChinaGuishan Han has type 2 diabetes

The challenge

Novo Nordisk approach

3

4

Methodology 12

Challenges ahead

About Blueprint for Change

14

15

Value creation

Physician training

Patient education

Local production

6

8

9

10

contentsThis report on changing diabetes in China assesses the business and societal value of three aspects of Novo Nordisk market entry strategy: physician training, patient education and local production. The Blueprint for Change demonstrates that our focus on building the market for the long-term has creared significant value for Novo Nordisk, as well as the Chinese society by reducing the personal and economic burden of diabetes. Lastly, this Blueprint for Change explores challenges ahead.

changing diabetes in China

The Blueprint for Change Programme

the challenge

China faces growing diabetes burden

China is one of the fastest-growing economies in the world and registered a 6% increase in the human development index (HDI) from 2000 to 2007 (1). The Chinese rise in the HDI is a result of growing GDP per capita, increased life expectancy and a higher average level of education. This development is accompanied by an increase in lifestyle related chronic disease. Diabetes poses a growing social, educational and economic challenge for the Chinese society and the people and families affected by diabetes. An estimated 40 million people in China have type 2 diabetes in 2010, a number expected to reach 80 million over the next 15 years (Figure 1). Urbanisation, high calorie diets and physical inactivity are all lifestyle related fac-tors known to cause diabetes (2).

The growth of diabetes is so serious that health care systems will soon be struggling to cope. Increasing childhood obesity in China is to diabetes and chronic diseases what melting glaciers are to climate change: a warning signal of times to come.

1. Anonymous. Human Development Report 2010 - 20th Anniversary. 2010 2010.2. Yang W. Diabetes, the hidden pandemic and its impact on China. 2009;1:28.

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Chronic diseases such as diabetes and hypertension are becoming public health challenges.

Chen Zhu, Chinese Health Minister

Figure 180 million Chinese expected to be diagnosed with diabetes in 2025

million Chinese expected to be diagnosed with diabetes in 2025

Forecast prevalence of diagnosed type 2 diabetes (1995-2007 (1,2)) 2007 – 2025 (2)

Age effect

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

20

4030

10

6070

50

8090

Million people

0

IncidenceUrbanisation

80.5

Baseline

novo nordisk’s approach

Early entry, long-term commitment, local presence

Novo Nordisk is among the first pharmaceutical companies to demonstrate a long term commitment to enhancing diabetes treatment and care in China. We have been present in China for nearly 50 years (Figure 2), and in 1994, at a time of great turbulence in China, we intensified our focus and established an affiliate with the long term goal of changing diabetes in China by improving the availability, accessibility and quality of care in the country.

We pursued a holistic strategy that went beyond business as usual – provision of new innovative treatments and services – by also focusing on physician training, patient education, strengthening the healthcare system, public awareness, local production and R&D.

In 1995, we opened our first production site, a packaging facility, in Tianjin. In 2002, we were the first pharmaceutical company to open a biopharmaceutical R&D centre in China. In 2006, the production of our durable insulin device NovoPen®3 was transferred from Denmark to Tianjin, and 2009 saw the complete transfer of all NovoPen® production, including the successor, NovoPen®4. In 2008, we began construction of a new high-tech insulin filling plant in Tianjin, which will begin producing Penfill® for the Chinese market in 2012. By 2015, the total ramp up will be completed, supplying the entire Chinese market.

4



Ron Christie, General Manager, Novo Nordisk China

The decision to focus on changing diabetes in China and continue to build support of the market during turbulent times was about balancing short term risks to the business with our long term commitment to changing diabetes.

Thorkil K. Christensen, VP Asia Pacific (1989-2000) and General Manager China (2001-2003)

Our targets in China were to strengthen the health care system, to build the understanding of diabetes, and to make a profit. We believed a holistic approach, combining public awareness, physician training and patient education was the right business approach to deal with diabetes in cooperation with the Chinese authorities. Even our most optimistic business forecasts could not have predicted the success we had with this strategy.

Strengthening health care systems

In the early 1990’s and for the next decade, the Chinese dia-betes community experienced a lack of focus on diabetes by pharmaceutical companies. Physicians and specialists identified long-term access to the best products and services as the most important factor enabling them to improve diabetes treatment and care.

In 1994, China had limited services and institutions to provide the necessary physician training and patient education (3). To fill this gap, we invested in community programs focusing on diabetes prevention. Later, we invested in a National Diabetes Program, including several public-private initiatives developed and executed in partnership with the World Diabetes Founda-tion and the Chinese Ministry of Health. The largest project, involving the World Diabetes Foundation and the Chinese gov-ernment, was initiated in 2002 with a focus on developing dia-betes guidelines, training and health system integration (4).

Effective diabetes management requires more than good medicines

Effective diabetes management requires the availability of high quality medicines, clinics, trained doctors and nurses, as well as training of patients to competently manage their condition. For a person with diabetes, proper use requires education on managing the balance between diet, blood glucose response, prescribed treatment and daily life activities.

3. Nielsen OK. Interview with Thorkil Kristensen, former General Manager, Novo Nordisk China. 2010.4. Anonymous. National Diabetes programme WDF02-036 (China). Available at: http://www.worlddiabetesfoundation.org/composite-119.htm. Accessed 12/21/2010, 2010.

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2012 - First batch of Penfill from Filling plant Tianjin

2011 - China independent region

2010 - Shared service centre

2009 - NovoPen® 4 manufactured in China only - 2nd Public-private partnership with Ministry of Health: Hospital

community integrated diabetes education program co-funded by WDF and Novo Nordisk

- Executive hospital managers MBA programme - Three research partnerships - Diabetes leadership forum 2009 China (Public affairs)

2008 - Chemical compound library licence to National centre for

drug screening - Changing diabetes®, 60 Cities tour - Cornerstone set for DKK 4000 million filling plant

2007 - Patnership with Chinese Academy of Sciences a

Research Foundation - Clinical development centre Beijing - DMDP – expanding diabetes care to smaller cities

2006 - Changing diabetes bus - Major expansion of Novo Nordisk Tianjin Plant - Complete transfer of NovoPen® 3

2005 - Health-Star search involves General public

2004 - Expansion of packinging and warehousing

2003 - 1st Public private partnership with Ministry of Health: National

diabetes program funded co-funded by World Diabetes Foundation and Novo Nordisk

- Novo Nordisk Tianjin Plant: First NovoPen® 3 released

2002 - Novo Nordisk Diabetes Update for physicians - Inauguration of R&D centre, Beijing

2001 - NovoCare club education team - Launch of STAR diabetes training with Steno Diabetes Center

1995 - Opens Production facility, Tianjin

1994 - Novo Nordisk Biotech Co., Ltd, Beijing

1962 - Introduces the first line of products in China

Timeline of Novo Nordisk’s commitment to changing diabetes in China

Figure 2

value creation

63% market share, 14,600 jobs and 140,000 life years saved

Looking at 2005 to 2010, our approach to – and investments in – the Chinese market created significant value for the Chinese society and Novo Nordisk.

Today, China is the third biggest market in Novo Nordisk’s business and the second largest insulin market. In 2010, we realised a 63% market share and sales of DKK 4,500 million (Figure 3), and insulin sales by volume of 12,000 mega units (Figure 4). Our long-term commitment to changing diabetes in China has built trust and our reputation among physicians while strengthening the relationship with key government agencies. Our goal is to be perceived as the world’s leading diabetes care company, leading the fight against diabetes type 1 and type 2. The trendline has been positive and stable compared to competition, and increasing among diabetes specialists (Figure 5).

Looking at the societal value generated, we contributed to the increase in GDP per capita by providing 14,600 direct and indirect jobs (Figure 6). The direct jobs consist of jobs in sales, education, production and R&D, reflecting the commitment to establish a strong local presence across our value chain.

The improved products and services provided saved 140,000 life years as of 2010 (Figure 7), a number growing annually by 30%. This increase is a result of improved products, increased physician training and greater patient education. Saving 140,000 life years is equal to every individual in the Danish city of Odense – or the Hong Kong new town Tin Shui Wai – living one year longer.

In the following value cases, we zoom in on three specific initi-atives characteristic of our long-term business strategy for Chi-na: physician training, patient education and local production.

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Figure 4Our share of the volume of insulin sold in China is increasing

Mega Units insulin sold in China in 2010

Source: IMS, other is a measure of total insulin sales from competitors. The IMS data covers 50% of the Chinese market, but is the best available public data

Novo Nordisk

2005 2006 2007 2008 2009 2010

2,000

6,000

4,000

10,000

8,000

12,000

Mega Units

0

Other*

12,000

Figure 3Novo Nordisk sales and insulin market share

Insulin market share reached in 2010

Business areas China sales

2000 2002 2004 2006 2008 2010

40

50

45

60

55

65

Market share % Sales DKK million

0

1.000

4.000

3.000

2.000

5.000

0

Novo Nordisk market share in China (Volume)

63%

The life years saved estimate was based on four CORE model (7) simulations.

The number of patients treated, and the mix of human and modern insulin sold in China was assessed using a method de-veloped by Henriksen et al., 2011 (8).

The number of derived jobs is based on the Chinese national accounts and illustrates the direct and indirect jobs created by re-spending and suppliers. The job creation is calculated by job category, where production workers create more indirect jobs than sales persons.

7. Palmer AJ, Roze S, Valentine WJ, Minshall ME, Foos V, Lurati FM, et al. The CORE Diabetes Model: Projecting long-term clinical outcomes, costs and cost-effectiveness of interventions in diabetes mellitus (types 1 and 2) to support clinical and reimbursement decision-making Curr Med Res Opin 2004 Aug;20 Suppl 1:S5-26.

8. Henriksen O, Jain P, Nielsen OK. New model to assess the lifeyears saved by having access to modern Novo Nordisk insulin in China from 2000-2015. ISPOR, Baltimore, MD, USA 2011.

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Figure 5Novo Nordisk recognised as the world leader in the fight against diabetes in China

Physicians and patients rate Novo Nordisk higher than peers

Patients

2006 2007 2008 2009 2010

0

10

5

15

20

Average brand goal development

-5

All above is good

Secondary carePrimary care

No. 1

Figure 6Number of direct and indirect jobs created by Novo Nordisk in China

jobs created byNovo Nordiskin China

NN employees

2005 2006 2007 2008 2009 2010

5,000

10,000

15,000

Number of jobs

0

SuppliersEmployee re-spending

15,000

Figure 7Improved products and services make patients live longer

extra lifeyears because of improved products and services in 2015

2015201020052000

100,000

300,000

200,000

500,000

400,000

600,000

0

80%Lifeyears

Henriksen et al., 2011 (8)

80%

physician training

Training saves billions on healthcare budgets and increases sales

Since 2003, we have facilitated training of physicians with focus on prevention, screening, optimising treatment and patient communication. Specific initiatives included targeted training days where key opinion leaders have educated physicians. We were the first to establish partnerships with the Ministry of Health and The World Diabetes foundation. Until 2010 we have formed six such partnership projects. We have promoted dia-betes awareness with the Changing Diabetes Bus, and held Novo Nordisk Diabetes Update congresses where international key opinion leaders have been in dialogue with key Chinese physicians and diabetes specialists. In total we have been facili-tating more than 220,000 physician training sessions. According to a market analysis by Marketview conducted in November 2010 (5), each physician in the survey had participated in four training sessions on average, indicating that a total of 55,000 physicians were trained in diabetes management. On average, each of these physicians treats 230 diabetes patients annually.

The physicians who responded to the survey rated training facilitated by Novo Nordisk as a significant contributor to bringing patients in control. Getting a patient in control saves society total lifetime costs of DKK 13,000, while it increases the lifetime insulin sales per patient (discounted lifetime sales) by DKK 18,600 (Figure 8) (2).

The trained physicians responded that 35% of their patients were in control, meaning that each physician had an average of 79 patients in control. Multiplying the numbers shows a DKK 56 billion reduction in diabetes related societal costs (dis-counted lifetime cost of treatment). It is not possible to directly attribute the total societal saving to the training facilitated by us, but it can be noted that a study from 2007 showed that 26% of patients were in control (6). Therefore, we argue that some of the value derived by training physicians can be associ-ated with the input provided by us.

We conduct training in smaller cities as well as in big cities. Physicians in the smaller cities rate the effect of training higher than physicians in larger cities (Figure 9). Medical updates by the pharmaceutical industry provide important on the job training, keeping the medical community informed about the latest medicinal breakthroughs. In China, such updates normally only target doctors in the bigger cities, which may explain this finding.

2. Yang W. Diabetes, the hidden pandemic and its impact on China. 2009;1:28. 5. Anonymous. Report of training effects on physician of endocrine departments in China. 2010.6. Pan C, Yang W, Jia W, Weng J, Tian H. Management of Chinese patients with type 2 diabetes, 1998-2006: the Diabcare-China surveys Curr Med Res Opin 2009 Jan;25(1):39-45.

The analysis of the health economic impact of physician train-ing was based on (2).

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Figure 9Training physicians in small cities has higher effect than training physicians in big cities

higher effect from training physicians in small citites than in big citites

Effect of Novo Nordisk training

Control rate Diagnosis rate Treatment rate

80

90

Points+6% +7%+9%

0

Big citiesSmall cities

9%

Figure 8Discounted lifetime cost reduction of getting a patient in control

DKK saved for patients in control vs. not in control

Lost production

A not in control

201

B in control

80

120100

604020

160180

140

200220

DKK thousands

0

ComplicationsManagementTreatment

13,000188

18,600 DKK

13,000 DKK

39%

18%

26%

18%

27%

15%

33%

25%

patient education

Education provides value to society and business

Since 1997, we have operated several education programmes in China to support patients in using our medicines optimally, but also to facilitate lifestyle changes and prevention. Our first program was the NovoCare telephone hotline, where diabet-ics could directly communicate with trained diabetes manage-ment specialists. The Novo Care education is a unique program running under the Novo Care club with more than 300.000 members. The changing diabetes bus both promote awareness of diabetes, but gives feedback to already diagnosed diabetics locally and facilitates local education initiatives. The initiatives mentioned, and the unique partnership between the World Diabetes foundation, the Ministry of health and selected key opinion leaders have since educated 280,000 patients – 145,000 directly and 135,000 indirectly.

From a business perspective, the upside of patient education is an increase in total sales per patient (discounted lifetime sales) by DKK 3,400 (Figure 10) (9). Assuming a 62% market share, the total extra lifetime sales would be DKK 596 million. The lifetime cost of an educated patient to society would be reduced by 13,000 DKK compared to a patient not educated. Based on the 280,000 educated patients, patient education is estimated to contribute DKK 3.7 billion in lifetime societal savings (discounted lifetime cost of treatment). Based on the figures regarding lifetime societal savings and increased life-time sales per patient and assuming a constant market share, educating patients provides six times more value to society than to us (Figure 11).

The health economic analysis of educating patients was based on a CORE model application (9).

9. Henriksen O, Jain P, Nielsen OK. Changing diabetes in China: Cost-effective patient education. ISPOR, Baltimore, MD, USA, 2011.

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Figure 10Discounted lifetime cost reduction by educating patients

cost reduction inDKK from edu-cating patients

Complications

Uneducated Educated

80

120

100

60

40

20

140

160

DKK thousands

0

ManagementTreatment

13,000138

3,400 DKK

13,000 DKK

151

Figure 11Educating patients adds 6 times more value to society compared to Novo Nordisk

more value added to society byeducating patients

Societal cost reduction Increased sales for Novo Nordisk

2,000

3,000

2,500

1,500

1,000

500

3,500

4,000

Million DKK

0

6 fold

596

3,706 6 fold

local production

Improved production efficiency, stable supply and stronger relations

To secure a steady future supply of high quality insulin, local production is important. It supports appropriate diabetes care, while providing jobs and stimulating economic development. Furthermore, local production has strengthened relations with critical stakeholders and increased our share of voice.

Establishing production in China with the latest “State of the art factory” has enabled us to gain production efficiencies and by being close to our customers we can respond quicker to market demand. In addition, local production mitigates future regulatory risk and ensures our license to operate.

Establishing production in China compared to other countries is more CO

2 intensive, as energy sources are based on coal. Therefore, initiatives to reduce CO2 are increasingly urgent. En-ergy efficient production also mitigates future CO2 compliance costs. The carbon footprint of the products sold on the Chi-nese market was reduced by optimising production, producing locally, and using localised suppliers. Our existing production facility in Tianjin and the new filling plant under construction have both optimised production. In terms of environmental im-pact, the new factory is established with the target of a 20% improvement in CO

2 emissions, energy efficiency and waste performance compared to the current best in class Novo Nor-disk production facility in Brazil, while also decreasing the con-struction and running costs of the plant. The energy efficiency projects at the existing Tianjin plant will provide a reduction of 10,000 tons of CO

2 from 2007 to 2015. The new filling plant will save 5,200 tons of CO2 per year by 2012. Local production of PenFills® saves 30 grams of CO2 per PenFill in import trans-portation – accumulated CO2 savings from 2012 to 2018 will total 25,000 tons. Localising suppliers for Novopen®4 reduced transport distances by a factor of 6 (49,000 km) (Figure 12); the distance saved is significant and would be equal to sending one NovoPen® to the sun 290 times*. The carbon footprint reduction would be of a factor 13 for a pen sold in China (Figure 13). Energy efficient production also mitigates future CO

2 com pliance costs.

* 49860 km pr pen*880.000 pens in 2009 / 149 *106 km to the sun.

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Figure 12Localisation of suppliers drives reduction in transport distance of NovoPen® 4

times less CO2 emission from reducing transportation from 59,860 to 10,050 Km.*6

Tianjin Nypro and ElosShenzhen Turvo and Global PMXThailand STL

Germany RKT and MesaCzech Republic MesaDenmark Elos Pinol, Lesjofors, AH, FJ Sintermetal and SKF

DenmarkCzech Republic

Tianjin

ShenzhenThailand

Germany

Figure 13Localised suppliers reduced NovoPen® 4 carbon footprint with a factor 13

times less CO2 emission by localising suppliers

European suppliers Chinese suppliers

300

400

200

100

500

CO2, grams

0

13

Grams of CO2 per pen

35

472

13ratio

Transport distance saved by localising production of the Novo-Pen® in China has been calculated as a point to point distance calculation with automated software (www.mapcrow.info). The software compares the travel distances of the former sup-pliers from their point of origin to Tianjin and the newly imple-mented supplier’s set-up. The most important assumption is shipment aggregation, which groups components by geo-graphic supplier proximity. Thus, 60,000 Km is a very conserva-tive number, as all suppliers from Germany for instance were considered as one shipment from Germany.

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methodologyAssessing value creation in China

The blueprint for changing diabetes in China is based on the holistic value creation model in Figure 14. With this model, we can assess the business and societal value of specific sustain-ability investments by adding the benefits of ‘maximising the upsides’ and the benefits of ‘minimising the downsides’. ‘Max-imising the upsides’ includes generating revenue and intangi-ble value such as reputation, trust, license to operate and em-ployee engagement. ‘Minimising the downsides’ includes cost savings, efficiency gains and short- and long-term risk mitiga-tion for business and society.

The blueprint for changing diabetes in China assesses the value of three aspects of our long-term market strategy aimed at strengthening the healthcare system and relations to key stakeholders in China: physician training, patient education and local production. Managers in our Chinese affiliate identi-fied these three market strategy initiatives as those they believe have delivered the most value to patients, the business and Chinese society.

Five value drivers are used to assess value to business and so-ciety. A set of value measures are associated with each value driver (Figure 15).

The assessment of value is based on an evaluation and selec-tion of business initiatives, several health economic analyses, a local market analysis and an environmental analysis of our pro-duction facility in Tianjin. The study was conducted by Novo Nordisk in collaboration with Accenture. For further informa-tion on methodology, please contact Ole Kjerkegaard Nielsen.

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Figure 14Triple Bottom Line investments create value by maximising the upsides and minimising the downsides

Maximise upsideCost

Risk

Minimise downside

Revenue Intangiblevalue

Cost Risk

Financially and economically responsible

Sociallyresponsible

Environmentallyresponsible

Colin Purdie, ESG investor, Aviva investors

In the longer term, earnings should be higher at a company with a favourable CSR profile. This is because the company will be better positioned to benefit from changing political, regulatory and industry regulations, taxes and trends. Other companies may not be as well positioned for these developments. In many cases, this beneficial CSR profile is not reflected in current earnings or price forecasts. Therefore, as an investor I am keen to invest in companies with favourable CSR profiles in order to capture the potential upside.

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Figure 15Four dimensions of business and societal value have been assessed

Valu

e drivers

Valu

e measu

res

- Revenue- Market share- Cost- Brand perception and relationships

- No. of jobs created- No. of indirect jobs- Discounted lifetime cost of treament

- No. of physicians trained- No. of patients in control- No. of lifeyears saved- Patients educated- Secure product supply

- Energy reduction- Distance saved- CO2 reduction

Value creation

Financial Economic Social Environment

Economic profit Employment Access to health- Energy- Transport

Novo Nordisk benefitsSocietal benefits

challenges ahead

With a leading position comes great responsibility and expectations – and fierce competition and price pressure

- How do we sustain our position in the Chinese market, balancing short term revenue and cost concerns with long term value creation for business and the Chinese society?

- We want to change diabetes in other emerging markets – to what degree can the approach in China be copied as a proxy?

- To what degree is a green approach the way forward on the Chinese market?

- Can ethical behaviour move from being compliance driven to driving business value in developing markets?

- What should we do to create more value for our future customers?



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about Blueprint for Change

By definition, a blueprint is a guide or plan that gives instruc-tions about how to build or create a new structure. Based on a common methodology, the Novo Nordisk Blueprint for Change programme aims to assess and communicate how our Triple Bottom Line business principle delivers value to business and society. The programme seeks to explore aspects of our approach to sustainability and related value creation that:

- Exceed, or seek to exceed traditional challenges of incre-mental improvement, compliance and accountability.

- Drive, or have potential to drive genuine market transfor-mation through innovative partnerships, products

and practices.

- Deliver ethical robustness and transparency throughout the value chain, or are en route to doing so.

We are not aiming to present a final solution. Rather, each paper presents work in progress, while also identifying key challenges ahead.

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Get in touch

Ole Kjerkegaard NielsenGlobal TBL Management+45 30 79 22 [email protected]

changing diabetes

Novo Nordisk is a global healthcare company with 87 years of innovation and leadership in diabetes care. The company also has leading positions within haemophilia care, growth hormone therapy and hormone replacement therapy. Headquartered in Denmark, Novo Nordisk employs more than 30,000 employees in 76 countries, and markets its products in 179 countries. Novo Nordisk’s B shares are listed on the NASDAQ OMX Copenhagen (Novo-B). Its ADRs are listed on the New York Stock Exchange (NVO).

Novo Nordisk strives to conduct its activities in a financially, environmentally and socially responsible way. The strategic commitment to corporate sustainability has brought the company onto centre stage as a leading player in today’s business environment, recognised for its integrated reporting, stakeholder engagement and consistently high sustainability performance. Novo Nordisk is listed in the 2010/2011 Dow Jones Sustainability Indices with a gold class rating. For more information, visit novonordisk.com/sustainability.

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